Economic Logic, Too

About Me

I discuss recent research in Economics and various events from an economic perspective, as the name of the blog indicates. I plan on adding posts approximately every workday, with some exceptions, for example when I travel.

Tuesday, December 4, 2012

Smart meters that allow you to monitor and manage electricity consumption are all the rage now. Power companies push them to consumers as the best deal that has ever been offered. And it looks enticing, as it promised more flexibility and the possibility of applying peak pricing in areas where this is not yet current. But is there really that much to gain? After all, these meters are not inexpensive technology.

Thomas-Olivier Léautier helps us here. He estimates how the responses of French households would be once they have smart meters and they can adjust their consumption to market prices. The outcome is humbling: the yearly savings would amount to 1-4€, which is likely less than forgetting to close a window one day in winter and much less than the 25 &euro/year cost of a smart meter. I see two reasons for this result. First, most households consume little energy. Second, their consumption pattern is not that flexible.

But would this result extend to other countries? North American households use a lot more electricity than French households due harsher climates and more carelessness about energy consumption. A smart meter there may in particular make people more aware of their power consumption and how one can reduce it to save money. This is much like a car that shows current gas consumption entices the driver to use less fuel. And this effect may make it worth it.